Is it all about the money, money, money?
Poor cash flow management is one of the biggest reasons why companies fail. Many profitable companies find that they are, for all practical purposes, insolvent – simply because of uneven cash flow
A major issue for SMBs is getting invoices paid on time—many suffer from poor payment practices by customers. Microsoft recently published a blog on exactly this – “it’s not all about the money, money, money” and it’s true. It’s not just the money, it’s making sure that the money is coming into the bank and reducing those debtor days.
There’s this great little table that can illustrate the problem of debtor days a lot better than I can. As we can see, a company that had 30 day payment terms would obviously expect to be paid in that time. However, in reality most payments would still be received in between 46-59 days, which is up to 29 days after the payment is due.
So what is it that delays these payments being made and making sure that you as a business has enough cash in the bank to trade successfully?
1. Dispute resolution / customer questioning
Dispute resolution can be a slow process. If the customer believes that they have been delivered the wrong goods or there was an issue with the order, then it can take time to locate the correct information and get to a resolution.
2. Inefficiencies at the customer side
Inefficiencies at the customer side can also cause delays. Requests for copy invoices or other documents that have been misplaced can affect debtor days, and miscommunications between your customer’s accounts team and the person who placed the order can also lead to drawn out disputes.
3. Cash flow at the customer side
Requests for information can also be used as delaying tactics by the customer, due to cash flow issues which need to be quickly addressed.
4. Internal inefficiencies
Finally internal inefficiencies such as documentation stored in various formats, statements and reminders not being regularly sent, and the time and cost of sending documents through the post can all hamper the collections management process, leading to delays in payment and increased debtor days.
What do you think could help with managing the collections process? Come along to our webinar on collections management to discover how we think that we can help save you time and keep your debtor days down!